Skilled immigrants needed to boost Minnesota’s economy

Minnesota faces the same problem as most of the developed world: an aging population. According to data from the Bureau of Labor Statistics, as baby boomers have started to retire, the state’s labor force participation rate has fallen from 72.6 percent in 2000 to 68.8 percent in 2017. The Minnesota State Demographic Center forecasts that this will continue falling to 64.6 percent by 2035. This will be an ongoing drag on future economic growth in the state.

The key measure of economic well-being is GDP (gross domestic product) per person. This is simply the value of the total amount of goods and services produced in an economy in a given period — GDP divided by the population. All else being equal, it follows that with a shrinking share of the labor force producing GDP there will be less of it to divide among the population, and GDP per person will be lower.

One policy often suggested as a remedy is increased immigration, as state economists Steve Hine and Cameron Macht argued in a recent edition of Minnesota Economic Trends. As the retiring baby boomers stop producing GDP, new arrivals can replace them in the labor force.

But this relies on two assumptions.

The first is that the new arrivals will have a labor force participation rate at least as high as that of the population already here. If they do not, they actually will lower the labor force participation rate, exacerbating the very problem they are proposed to solve. There is good news here. According to U.S. Census Bureau data, the labor force participation rate among Minnesota’s foreign-born population was 72.7 percent in 2016, above that for native-born Minnesotans.

The second assumption depends on the new arrivals being at least as productive as the workers already here. Remember, the key measure of economic well-being is GDP per person, and immigrant workers add to the denominator (population) as well as the numerator (GDP). If these workers increase the population by a greater percentage than they increase GDP, they will lower GDP per head.

What matters here is the skill level of the workers, and here the picture is less positive. As Hine and Macht noted, 32.6 percent of immigrants aged 25 or older have bachelor’s degrees or higher, a figure similar to native-born Minnesotans’ 35 percent. However, whereas 34 percent of native-born Minnesotans have attended some college or earned an associate degree, that figure is just 21.6 percent for foreign-born Minnesotans and falls to 15.5 percent for foreign-born non-citizens. While 30.8 percent of native-born Minnesotans have a high school diploma or less and just 4.9 percent are not high school graduates, for foreign-born Minnesotans these numbers are 45.8 percent and 27.1 percent respectively. For foreign-born residents who are not citizens these figures rise to 52.7 percent and 34.4 percent.

This is reflected in the jobs Minnesota’s immigrants do. As Hine and Macht wrote, “Foreign-born workers were found more often in service occupations, which include health care support, protective service, food preparation and serving, building and grounds cleaning, and personal care occupations.”

As we at the Center of the American Experiment wrote in our recent report, “The State of Minnesota’s Economy: 2017,” these are lower-productivity jobs that generate relatively low levels of GDP.

Reflecting on these gaps in education and skills, Hine and Macht argue that, “Many immigrants need access to education to be prepared for the workforce.” But this will come at a cost to Minnesota taxpayers. From an economic-growth perspective, would it not be better to focus on attracting educated, highly skilled immigrants who do not need to be trained at taxpayer expense?

Surprisingly, Hine and Macht are silent on the other way Minnesota can keep its economy growing with a shrinking labor force: increased labor productivity. If the remaining workers are each able to generate more GDP, then GDP per person can continue to grow even with fewer workers.

Indeed, at a conference at the Minneapolis Federal Reserve in October, the state’s economist, Laura Kalambokidis, identified this as the key to maintaining economic growth.

Sadly, Minnesota’s recent record here is poor, with the average Minnesota worker generating 8.2 percent less GDP in 2016 than the national average.

So immigrants can play a part in boosting Minnesota’s economic growth in years to come. But “immigrants” is a big term covering everyone from tech company CEOs to refugees, and it is rarely helpful analytically to lump them all together. Where economic growth is concerned, our state will need to attract those with more skills.

John Phelan is an economist at the Center of the American Experiment (americanexperiment.org), based in Golden Valley, Minn.

Upcoming Events

Please join Center of the American Experiment on Wednesday, January 16th at the Hilton Hotel for a lunch forum with Center economist and author of the new report, “The State of Minnesota’s Economy: 2018,” John Phelan. Learn where Minnesota’s economy stands and where it is headed. John Phelan is a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc. John worked in finance for ten years before becoming a professional economist. At Capitol Economics in London, he wrote reports ranging from the impact of Brexit…